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Ashok Leyland



The company established in September 1948, Ashok Leyland is the second largest manufacturer of MHCVs (Medium & Heavy Commercial Vehicles) in India, the fourth largest manufacturer of buses in the world and the sixteenth largest manufacturer of trucks globally. Ashok Leyland is the flagship company of the Hinduja group, with the group holding 51% stake in the company. Headquartered in Chennai (India), the company is one of the most fully integrated manufacturing companies with its footprints across 50 countries across the globe.

Valuation and View

Given the positive outlook for MHCVs, revival in economic growth and Ashok Leyland’s focus on exports and low-growth LCV segment, we expect improvement in the company’s performance in the coming quarters. Further, the plans to lower down the discounts currently offered to boost sales volume are expected to push revenue. Moreover, the company has been able to take price hikes during the past quarters to offset the discounts. Besides, the company has laid focus on working capital management and accordingly lowered its working capital requirement. Going ahead, the positive operating leverage from volume growth will be beneficial to the margins. Further, on the back of cost control initiatives taken by the company, we expect some uptick in margins in the coming quarters.

At a current market price (CMP) of Rs 65.8, the stock trades at an EV/EBITDA of 16.6x FY16E and 13.7x FY17E. We recommend ‘BUY’ with a target price of Rs 84.7, which implies potential upside of ~19.6% to the CMP from long term perspective.